U.K. online music hobbled by high prices

High prices and digital rights management incompatibility are slowing the take-up of online music services in the United Kingdom, according to analyst firm IDC.

Jason Armitage, senior research analyst at IDC's European consumer devices unit, said that despite the rapid increase in the number of iTunes-style stores, the United Kingdom has yet to benefit from more choices or cheaper pricing.

"In spite of the mounting competition among suppliers, pricing for subscriptions, albums and individual tracks remains stubbornly high," he wrote in a research note. "Only a handful of subscription services are currently available in the U.K., offering consumers a limited range of packages at steep monthly prices."

Armitage said part of the problem is that record labels aren't passing on the savings from selling music in digital format to their customers.

"Given the savings in distribution and packaging costs, pay-per-download services can also afford to get a lot cheaper. The first significant moves have been evident in album pricing, a format that has proven unpopular with downloaders. In the U.K., online albums could be purchased at a 30 percent to 45 percent discount to their CD equivalents in 2005," he wrote.

It's a troubling issue for Apple Computer CEO Steve Jobs, the man behind No. 1 online music store iTunes. Speaking at Apple Expo earlier this month, he said Web song shops are resisting pressure from record labels to increase prices.

"Record companies make more money on iTunes than they do on CDs," Jobs said. "If they want to raise prices on iTunes, it just means they're getting a little greedy--consumers won't like that. It will just be a message to consumers to go back to piracy, and that's not good. If the price goes up a lot, they'll go back to piracy, and everybody loses."

IDC's Armitage said online music stores also need to improve their user experience--both pricing and music player compatibility--to get consumers excited about buying music again.

"Services are improving, but buying music online can be an experience devoid of the pleasures of the record store," he said. "Problems in playing backtracks on portable audio players escalate, as users discover downloaded tracks are not compatible with their devices. For customers choosing which songs to download, the logic that leads to price discrepancies between newly released tracks can be bewildering."

The incompatibility war among different portable music players and video devices has attracted criticism from several groups, including the Electronic Frontier Foundation.

"Interoperability problems look set to remain long-term features of online music," Armitage said. "Consumers already have existing alternatives--in the form of physical media and free music services--that will continue as popular methods for acquiring digital music (so) usage of paid music services will remain confined to a minority of consumers in the next few years."